The Free-Market Reader: Essays in the Economics of Liberty.

WE LIVE IN what the Chinese call "interesting times." Communism is in collapse and, in what one hopes are its death-throes, is displaying its most inhuman face. Socialism is in disrepute even among intellectuals who have never had to live under it-a historic first, I believe. Free economies around the world are flourishing.

And yet the mystique of the state grips us with amazing tenacity. After eight years of Ronald Reagan, American politics is still dominated by the presupposition that "government" is the correct answer to every problem-and "problems" (poverty, AIDS, pollution, homelessness) are defined in practice as anything for which a governmentally funded "solution" can be conceived.

American conservatives, moreover, are suffering from a malaise and confusion that come as a surprising contrast to their recent sense of triumph. Factional bickering has broken out, especially with neoconservatives. What has gone wrong?

Part of the problem is that a movement that began in resistance to the welfare state thought it had won a final victory when it had only won temporary and partial control of the welfare-state apparatus. It was fine to make alliances with neoconservatives where there was a real common ground, but in the haste to bury old hatchets a few principles were buried too. Support for Reagan became too personalized, and therefore uncritical, as loyalty tends to be.

It looks as if the more egregious forms of collectivism are going into remission, thank heaven. When the leader of the Soviet Union says the sort of things about Communism that the New York Times used to rebuke Reagan for saying, things are looking up. But this means that conservatism faces subtler challenges in the years ahead, if only because there are fewer obvious monsters to fight.

What is needed now is not more of "our" guys in Cabinet-level positions, but a return to principled thinking about the nature of government. That kind of thinking has become a near monopoly of libertarians, as two new books attest.

The Free-Market Reader is a collection of articles from Free Market, the little journal of the Ludwig von Mises Institute. I wish I could describe it without using the E word, because to say it's "about economics" will immediately repel some readers who assume that the subject must be boring, technical, or beyond their ken. In fact, it is thoroughly lively, in the spirit of one of its patron saints, Henry Hazlitt. What it does unremittingly is to connect economics with politics and ethics.

Here is a fair sample, quoted from Hazlitt himself: "If you forbid what is harmful to others, you have a big enough job for any government to take care of. Moreover, you have definite logical boundaries to that job. But if you begin to demand altruism, legally, then there are no logical limits until everybody has been forced to give away all he has earned . . ."

Here is the editor, Llewellyn H. Rockwell Jr., on the Federal Reserve System:

Inflation benefits the Fed and its constituents as counterfeiting benefits a counterfeiter and his gang. The private counterfeiter, however, is a relatively minor criminal; the Fed does exactly what the counterfeiter does, but massively and on a worldwide scale. As in so many other areas, what is (rightly) condemned in the private sector is lauded in the public.

A few dozen such passages, and you grasp that economics is, as von Mises always insisted, a subdivision of "human action," not a self-enclosed set of impersonal forces, like physics. And you intuit that law based on property rights is a system of assigning personal responsibility, while the modern state has become a gigantic device for obscuring same. Jim Wright and his colleagues have been seeing to it that a trillion dollars a year are diverted, untraceably, from those who earned them to favored recipients, thereby dislocating the primal ratio between act and consequence that makes human action rational.